It’s been decades now since NFL running back O.J. Simpson ran through airports on behalf of Hertz (NYSE:HTZ). Granted, that was kind of hard to do when he was behind bars for nine years. But O.J.’s fate could be considered mild compared to what the onetime rental car king has endured this year. HTZ stock is down 92% since February — the technical term for this is “on life support” — and trading in penny stock territory at $1.21 per share.
Plodding through Chapter 11 bankruptcy on flat tires, Hertz may very well find itself reduced to hubcaps and rusty tailpipes once creditors split up what remains. My InvestorPlace colleague Mark R. Hake recently characterized Hertz stock as “very likely worthless.” And if it were possible to dial that up a notch, I would.
But as worthless is pretty much the bottom of the investment barrel, my task here will to be put that label in context since it’s a valid strategy to buy when a legacy stock hits the pavement, in hopes of a bounce.
The Theoretical Case for an HTZ Stock Comeback
I cannot blame investors who might use some familiar arguments on behalf of an HTZ stock purchase. For starters, it’s cheap. Really cheap. If it can recover a modest portion of its value, say 60 cents a share, you’d be looking at a 50% markup that you could pocket at the first whiff of trouble on the horizon.
What’s more, billionaire Warren Buffett is a big fan of buying name brand stocks when “they’re on the operating table.” Hertz is certainly a familiar name, with roots going back to the horseless carriage days of 1918.
Remember the Great Recession and when certain big bank stocks were left for dead? Witness Citigroup (NYSE:C). It nearly flatlined, trading very briefly in sub-dollar territory in 2009. Today, it’s at $42 per share. Believe it: Big comebacks from the grave are possible.
Perils of a Pandemic
But one thing Citi didn’t face then, even for all its troubles, was this little thing called a pandemic. The novel coronavirus has crippled business and leisure travel of every kind. Airport lines have evaporated. Through no fault of its own, Hertz was left holding the keys while America went on lockdown.
That brings us to the present, where we can start from 10,000 feet and work in. No matter the health of a company, it’s simply not smart to invest in anything connected to travel unless you plan for a time horizon at least one to two years out. At that point, a Covid-19 treatment may ease public fears. But not all of them. Some customers will be lost for good.
Meanwhile, business CFOs are beginning to like Zoom Video Communications (NASDAQ:ZM) and other videoconference tools as they’re saving them boatloads in travel and convention expenses. Vaccine or no (and I contend it could take years, based on scientific precedent), don’t expect the moving-to-Zoom trend to entirely reverse itself. Ever.
Buying Hertz Is a Bad Idea
Now, for the Hertz situation. When I wrote recently about the Whiting Petroleum (NYSE:WLL) bankruptcy, I lamented that investors only got one new share for 75 old ones, even if share prices soared from 57 cents to north of $23. But with HTZ stock, it’s even worse. Investors have been given nothing amid Chapter 11 and so can only hope for the best. If hope is indeed the thing with feathers, consider these feathers tarred in 10w40 motor oil.
Now, let’s re-insert insert the word “worthless” here. Not all that long ago, the New York Stock Exchange was looking to delist Hertz stock. The road out of bankruptcy is uncertain. Business travel has been crippled indefinitely; ditto leisure travel. Those familiar Hertz kiosks at airports? Those aren’t car engines you hear in the parking garage: They’re crickets.
So would I buy Hertz stock? Or rent one of its cars, given Covid-19? Let’s put it like this: I’d feel safer, either way, hitching a ride with O.J. in his white Ford Bronco.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.